Big tech companies like Google, Facebook, Apple, and Amazon are having a big impact on the economy and society in general, and this raises concerns on many fronts, from data protection to the process of will formation. democratic. They also tend to become monopolies, which poses a challenge to competition law. Raphael Reims analyzes the problems inherent in the regulation of Big Tech.
Is competition law capable of dealing with big tech business methods, or would a separate regulatory regime be more appropriate?
Big technologies have a big impact on the economy and society at large, raising concerns on many fronts, from data protection to the process of forming democratic will. But competition concerns are only linked to the tendency of digital markets to lead to monopolies. The undesirable effects of monopolies are reduced returns, higher prices, income transfers from consumers to producers, and high expenses by companies to acquire a monopoly. This also explains the many procedures in competition law against Google, Facebook, Twitter, Amazon, Apple etc. as well as reports for the European Commission and national authorities.
The potential to lead to monopolies arises from the functionalities incorporated by digital markets in particular, but not exclusively. These are regularly two-sided markets, in which companies sell two different products to two different groups of consumers. The more they sell to one group, the more incentive the other group has to join. For example, Visa sells its products to retailers and consumers. The more consumers use a Visa card, the more merchants want to adopt it, and vice versa. In addition, digital businesses regularly benefit from network effects. These occur if the adoption of a good benefits other adopters and increases the incentives to adopt. Examples are the user structure of Facebook, WhatsApp and Windows. In addition, digital markets regularly exhibit increasing returns to scale. This means that the production costs are extremely less than proportional to the number of customers. One example is the cost of Facebook employees and facilities relative to its number of users and advertisers. Finally, free services are regularly offered in digital markets as consumers are drawn to free services. The problem is, only a few companies can afford it.
Finally, the concern about monopolies in digital markets is not always justified. For example, the ability and incentive of consumers to use different platforms can also avoid monopolies, which are sometimes more vulnerable than one might think. Nevertheless, the trend remains that digital markets have the potential to lead to monopolies.
Big Tech competition law enforcement issues
Competition law enforcement has been increasingly proactive in trying to deal with the monopoly tendencies of Big Tech. When enforcement is reactive, remedies are negative in nature, for example when companies are asked not to commit a similar offense in the future, sometimes having to pay an administrative fine. These interventions are ad hoc. Such remedies are particularly common in the case of cartels. On the other hand, proactive enforcement uses positive remedies, often including the obligation of the business to do something, which may require ongoing monitoring. One example is the European Commission’s Internet Explorer decision, in which it asked Microsoft to give Windows users the choice of different browsers.
The increasingly proactive enforcement of competition law is problematic for several reasons. It leads to legal assessment factors that are difficult to predict for companies. For example, if the owner of an intellectual property right refuses to license it, this constitutes an abuse of a dominant position in the market under the following vague legal criteria: if the supply is essential for others to be effectively competitive on the downstream market, if the refusal prevents the emergence of a new product and if the refusal is likely to eliminate effective competition on the downstream market.
Proactive enforcement of competition law involves business decisions for which competition authorities and courts may be generally ill-equipped. For example, officials and judges concerned are not trained to distinguish the advantages and disadvantages of a neutral search engine or integrating various services. Likewise, remedies require continuous monitoring and therefore cannot be carried out as often or require more manpower from the competition authorities.
In addition, proactive competition law enforcement remedies may not be adequately implemented. One example is the European Commission’s Google Shopping decision, which asked Google, among others, to rethink Google search to treat Google Shopping and competing price comparison services equally in its search results. However, the corresponding competitors still argue today that the changes introduced by Google search do not meet the obligation imposed by the Commission.
Finally, remedies imposed by the proactive application of competition law can have unintended consequences. For example, the European Commission asked Microsoft to release the Windows 7N operating system without Windows Media Player preinstalled which was of no interest to the market.
Separate regulatory regime
A number of reforms have been proposed to address the above issues. A report by the European Commission has proposed that potentially anti-competitive behavior be prohibited and that companies be responsible for proving the pro-competitive nature of their behavior. Another example is the corresponding UK report. It proposed, for example, to increase the discretionary power of competition authorities and create greater obstacles to appealing their decisions. These proposals can be criticized for lowering the threshold for proactive application, thereby increasing it.
The draft European law on digital markets has chosen other paths. It was presented as a specific instrument for rapid intervention not from competition law but from regulatory law and has many peculiarities. For example, the draft does not address anti-competitive effects and does not provide any justification for effectiveness. This can be criticized as ignoring the specific economic characteristics of the market on a case-by-case basis.
The scope is also unusual. It refers to the so-called keepers. These are companies that: a) operate a basic platform service that serves as an important gateway for business users to reach end users; b) enjoy a solid and sustainable position in its operations – or it is foreseeable that they will enjoy such a position in the near future; c) and have a significant impact on the internal market. The criticism here is that the scope of the assessment is very broad and that judicial review is questionable.
With regard to prohibited behaviors, a distinction is made between self-executing bans and bans which require further clarification from the European Commission. The first includes the prohibition on requiring users to register with other basic platform services when they wish to use a service; a ban on preventing users from raising any issue before an authority; and the ban on the use of non-transparent advertising services. The latter includes the prohibition of self-preference (when platforms favor their own products or services), the ban on the use of non-public data for the benefit of a vertically integrated platform operator; a ban on unfair negotiations between app store providers and app developers; and a ban on denying competing search engines access to data. The prohibition of various types of behavior can be criticized as being very broad.
Competition law is only partially able to meet the expectations of Big Tech. But the European digital markets bill as a separate regulatory regime can also be criticized. Whether it is more appropriate to address respective concerns about the business methods of big tech companies will only become clear in practice.
- This blog post first appeared in LSE Business Review.
- Image featured by the Thoughts Catalog on Unsplash
- Author Disclaimer: The opinions expressed in this article are my own and should not be attributed to my law firm or my clients.
- Author Disclosure: I have no professional involvement with large tech companies.
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About the Author
Raphael Reims is a lawyer at Noerr, Munich, specializing in antitrust and competition law.